A Eu1bn three-and-a-half year Bank of Ireland ACS priced on Wednesday revealed a transformation of demand for the Irish bank’s covered bond, an official at the issuer told The CBR, with private placements also now coming into play.

Darach O’Leary, Bank of Ireland

The deal met with heavy demand, Eu3.6bn, to make for the biggest order book for an Irish covered bond post-crisis, and among the larger for any benchmark covered bond this year. Credit Suisse, HSBC, Lloyds Bank, Natixis and UBS were joint lead managers.

Darach O’Leary, head of wholesale funding at Bank of Ireland, said that the issuer wanted to make a start on meeting its 2014 funding requirements and that it had been encouraged to tap the market given apparent strong interest in Bank of Ireland Mortgage Bank covered bonds.

“Over the last six weeks there has been noticeable demand for our ACS bonds in the secondary market,” he said. “Demand was more concentrated in the short to medium end of our existing curve.”

Five Irish benchmark covered bonds have been sold this year, three for Bank of Ireland Mortgage Bank and two for AIB Mortgage Bank, with Wednesday’s for Bank of Ireland the first to exceed Eu500m. The issuer also priced a Eu1bn deal last November when it reopened the market for Irish financial institutions after the sovereign’s bail-out.

“We were confident that there was significant demand and we felt that the liquidity of our bonds in the secondary market could benefit from a larger bond issue,” said O’Leary, “and the evolution of the bookbuild in the morning of the transaction and the post-pricing performance of the new issue and ACS bonds in the secondary market would support that position.”

“We knew that there was significant demand and we felt that supplying a larger bond would help our secondary curve and help post a successful transaction, and I think the order book backs that up.”

Some 235 investors placed orders, driven by international real money accounts and bank treasuries buying for LCR purposes, according to a syndicate banker at one of the leads.

This and other features of the deal size represent a notable improvement on the bank’s re-entry into the market in November 2012, said O’Leary.

“Over the past 12 months the most interesting development has been the transformation of demand for our ACS bonds,” he said. “Compared to our transaction 12 months ago, this week’s transaction provided a much deeper and diverse array of real money demand in an order book over 50% larger with spreads 150bps tighter.”

A lead syndicate official noted that Wednesday’s Bank of Ireland transaction attracted 60 more investors than the November 2012 trade, and around Eu1.2bn more of demand, in addition to having the tighter spread.

Germany and Austria took 33% of this week’s issue, the UK 22%, France 11%, the Nordics 10%, the Benelux 7%, Switzerland 6%, southern Europe 5%, and others 6%.

Asset managers were allocated 65%, pension funds and insurance companies 17%, banks and private banks 13%, central banks and public entities 4%, and others 1%.

The Eu1bn May 2017 ACS comes after the issuer last week sold its first privately placed covered bond in several years, a Eu10m 12 year issue, and O’Leary said that the private placement market will be important for the issuer.

“Public market access was the primary focus for the group in 2013,” he said. “However, diversifying our funding base will be more of a focus in 2014 and the private placement market plays an important role in that regard.”